Netflix experienced some membership turbulence in 2016 as a price increase was phased in for its US subscribers. In May 2014, Netflix announced that the price of its standard subscription service would increase from $8 to $9. However, established customers were allowed to stay at the $7.99 price for two years. In 2015, Netflix increased the standard price to $9.99. As a result of the pricing plan and the deferred price increase, in May, 2016, the standard pricing plan for long time customers of Netflix increased from $7.99 per month to $9.99 per month. Netflix began notifying customers in April that the price increase would become effective in the second quarter.
Netflix was trying to implement price increases more slowly after a 2011 increase led to negative publicity and a customer backlash. In that case, Netflix separated its streaming and DVD services, and charged separately for both services.
However, regardless of the implementation of the price increase, the higher monthly prices seem to have impacted the growth of membership among US subscribers. In the two quarters before the price increase, Netflix added net membership of 1.6 million and 2.2 million members. By contrast, the number of members added in Q2 was only 160,000, and in Q3 only 400,000. The Q2 growth in US subscribers was the lowest since Netflix began reporting those numbers in 2012.
|
US Streaming (millions) |
Q2 2015 |
Q3 2015 |
Q4 2015 |
Q1 2016 |
Q2 2016 |
Q3 2016 |
|
Revenue |
1026 |
1064 |
1106 |
1161 |
1208 |
1304 |
|
Contribution Profit |
340 |
344 |
379 |
413 |
414 |
475 |
|
Contribution Margin |
33.1% |
32.3% |
34.3% |
35.6% |
34.3% |
36.4% |
|
Paid Memberships |
41.1 |
42.1 |
43.4 |
45.7 |
46.0 |
46.5 |
|
Total Memberships |
42.3 |
43.2 |
44.7 |
47.0 |
47.1 |
47.5 |
|
Net Additions |
0.90 |
0.88 |
1.56 |
2.23 |
0.16 |
0.40 |
|
Monthly Revenue per Paid Member |
$ 8.33 |
$ 8.43 |
$ 8.49 |
$ 8.47 |
$ 8.75 |
$ 9.40 |
|
Percentage Chg. Rev |
3.7% |
3.9% |
5.0% |
4.0% |
7.9% |
|
|
Percentage Chg. Memberships |
2.5% |
3.2% |
5.3% |
0.6% |
0.9% |
|
|
Source: Netflix 10Q Q3, 2016 |
||||||
1) In 2016 Netflix allowed its prices to increase for U.S. subscribers. Using the data on monthly revenue per paid member in the quarter before the price increase and at the end of the third quarter in 2016, calculate the percentage change. We will use it as a proxy for the percentage change in price.
2) Determine the average membership growth (net additions) before the price increase.
3) Using the projections in the previous question, assuming the growth rate would have stayed the same, how many subscribers Netflix may have expected to add in the 2nd and 3rd quarters of 2016 if it didn't allow the price to increase? How many subscribers did Netflix actually add in the 2nd and 3rd quarters of 2016? Comparting the two numbers how many subscribers were gained/lost due to price increase? What percentage change does it represent relative to the subscribership level in the quarter before the price change (use Total Memberships)?
4) Using the percentage changes in the price and subsriberships calculated in the previous questions, determine the own price elasticity of demand.
5) What do we expect to happen to Netflix's revenue due to the price increase?
In: Economics
Atlantic City Hospital owns and operates a local hospital. It also leases unused space, including beds to other businesses that offer related services such as Physical Therapy and Long-Term Care. Atlantic City charges each company for common services provided such as laboratory and xray services. The hospital charged the following costs to Long Term Care for the year ended June 30,2018:
| Variable Expenses | Fixed Expense | |||||
| Food Service | $560,000.00 | |||||
| Xray Service | 71000 | |||||
| Laundry | $250,000.00 | |||||
| Lab costs | $430,000.00 | |||||
| Pharmacy Services | $310,000.00 | Variable Expenses are charged | ||||
| Repairs and Maintenance | 33000 | for patient days | ||||
| General and admistrative | 1300000 | |||||
| Rent | 1540000 | Fixed expenses are charged | ||||
| Bill and collections | $250,000.00 | based on bed capacity leased | ||||
| Total | $1,800,000.00 | 2944000 | ||||
During the year ended June 30, 2018, Long Term Care charged each patient an average of $500 per day, had availability of 80 beds and had revenue of $6 million for 365 days. In addition, Long Term Care directly employed personnel with the following annual salary costs per employee: supervising nurses $26625; nurses $20,200 and cna's $8500.The hospital has the following minimum departmental personnel requirements, based on total annual patient days:
| Annual Patient Days | Nurse aid (CNA) | Nurses | Supervisor Nurses | |
| Up to 20,000 | 20 | 10 | 4 | |
| 20,001 to 25,000 | 25 | 14 | 5 | |
| 25,001 to 30,000 | 31 | 16 | 5 | |
Long Term care always employs only the minimum number of supervising nurses and nurses but operates with 5 additional aides than the minimum required by the hospital. Salaries of supervising nurses, nurses and CNA's are fixed within ranges of annual patient days.
Long Term care operated at 100% capacity on 80 days during the year ended June 30, 2018. The hospital estimates that on the 80 days, Long Term care could have filled another 20 beds above capacity. The hospital has an additional 20 beds available for lease for the year ending June 30, 2019. The additional leased beds would increase Long Term care's fixed charges based on bed capacity. (ignore income taxes).
1. Calculate the break-even patient days for Long Term care for the year ending June 30, 2019, assuming 20 extra beds are not leased. Assume all other data and rates from June 30, 2018 remain the same.
2. Determine the net increase or decrease in Long term care's earnings for the year ending June 30, 2019 from the additional beds if Long Term care leased this extra capacity from Atlantic City Hospital. Create a schedule of Long Term care's increase in revenue and increase in costs for the year. The number of additional patient days is based on using the additional beds when at max capacity. Assume patient demand, revenue, variable and fixed rates from June 30,2018 remain the same.
3. Should Long term care lease the additional 20 beds for the year ending June 30, 2019?
4. If max capacity were to increase and the additional beds were needed for more than 80 days at what number of days would they willing to lease the additional 20 beds? Calculate the break-even (patient days) for Long Term care to lease the additional beds. Only consider the revenue and expenses calculated in question #2.
In: Accounting
Citation Builders,
Inc., builds office buildings and single-family homes. The office
buildings are constructed under contract with reputable buyers. The
homes are constructed in developments ranging from 10–20 homes and
are typically sold during construction or soon after. To secure the
home upon completion, buyers must pay a deposit of 10% of the price
of the home with the remaining balance due upon completion of the
house and transfer of title. Failure to pay the full amount results
in forfeiture of the down payment. Occasionally, homes remain
unsold for as long as three months after construction. In these
situations, sales price reductions are used to promote the
sale.
During 2018, Citation began construction of an office building for
Altamont Corporation. The total contract price is $25 million.
Costs incurred, estimated costs to complete at year-end, billings,
and cash collections for the life of the contract are as
follows:
| 2018 | 2019 | 2020 | |||||||||
| Costs incurred during the year | $ | 5,000,000 | $ | 11,875,000 | $ | 5,625,000 | |||||
| Estimated costs to complete as of year-end | 15,000,000 | 5,625,000 | — | ||||||||
| Billings during the year | 2,500,000 | 12,500,000 | 10,000,000 | ||||||||
| Cash collections during the year | 2,250,000 | 11,150,000 | 11,600,000 | ||||||||
Also during 2018, Citation began a development consisting of 12
identical homes. Citation estimated that each home will sell for
$900,000, but individual sales prices are negotiated with buyers.
Deposits were received for eight of the homes, three of which were
completed during 2018 and paid for in full for $900,000 each by the
buyers. The completed homes cost $675,000 each to construct. The
construction costs incurred during 2018 for the nine uncompleted
homes totaled $4,050,000.
Required:
1.
Which method is most equivalent to recognizing revenue at the point
of delivery?
2. Answer the following questions assuming that
Citation uses the completed contract method for its office building
contracts:
2-a. How much revenue related to this contract
will Citation report in its 2018 and 2019 income statements?
2-b. What is the amount of gross profit or loss to
be recognized for the Altamont contract during 2018 and 2019?
2-c. What will Citation report in its December 31,
2018, balance sheet related to this contract? (Ignore cash.)
3. Answer the following questions assuming that
Citation uses the percentage-of-completion method for its office
building contracts.
3-a. How much revenue related to this contract
will Citation report in its 2018 and 2019 income statements?
3-b. What is the amount of gross profit or loss to
be recognized for the Altamont contract during 2018 and 2019?
3-c. What will Citation report in its December 31,
2018, balance sheet related to this contract? (Ignore cash.)
4. Assume the same information for 2018 and 2019,
but that as of year-end 2019 the estimated cost to complete the
office building is $11,250,000. Citation uses the
percentage-of-completion method for its office building
contracts.
4-a. How much revenue related to this contract
will Citation report in the 2019 income statement?
4-b. What is the amount of gross profit or loss to
be recognized for the Altamont contract during 2019?
4-c. What will Citation report in its 2019 balance
sheet related to this contract? (Ignore cash.)
5. Which method of accounting should Citation
Builders, Inc adopt for its single-family houses?
6. What will Citation report in its 2018 income
statement and 2018 balance sheet related to the single-family home
business (ignore cash in the balance sheet)?
I am interested in 4 c
In: Accounting
Southern Glass manufactures glass bottles for a variety of products, including perfume bottles and liquor bottles. The company has two profit centers: production and labeling. The production department melts the raw materials, adding metal oxides to produce different colors if desired. It then uses a continuous rolling process to shape the bottles. Production then transfers the bottles to the labeling department at an average cost of $15 ($12 variable; $3 fixed) per case. The labeling department then paints or attaches labels on the bottles at an additional fixed cost of $1 and sells the labeled bottles on the external market at an average price of $30 per case.
Recently, a regional liquor manufacturer contacted the manager of the production department about purchasing ¼ of the 250,000 cases Southern Glass plans to make in April. The company would like production to start making their specially shaped bottles. They are willing to pay $28 per case. Making the special bottles would not affect the production department’s cost but it would require cutting current bottle production by ¼; therefore, the labeling department would only label and sell 187,500 labels in April.
(1) Will the production department prefer to sell all 250,000 cases internally or sell ¼ (62,500) cases to the liquor manufacturing and ¾ (187,500) to the labeling department?
(2) Will the labeling department prefer to purchase all 250,000 cases internally or allow production to sell ¼ (62,500) cases to the liquor manufacturing?
(3) Will company profits be maximized if the production department sells all 250,000 cases internally or sells ¼ (62,500) cases externally and ¾ (187,500) internally?
(4) Why is there a goal congruence problem (hint: does everyone want the same option)?
(5) Provide one specific policy change that can solve the goal congruence problem illustrated in this example (at a minimum, there are three changes – you only need to provide one). How does your policy change solve the problem?
These tables must be filled out before the questions can be answered.
Production Department Revenues and Costs
|
(1) If production transfers all cases to labeling |
|
|
Revenues from transfers to labeling |
|
|
Variable production costs |
|
|
Fixed production costs |
|
|
Net profit |
|
|
(2) If production sells ¼ to ABC & transfers ¾ to labeling |
|
|
Revenue from sales to ABC Mfg. |
|
|
Revenue from transfers to labeling |
|
|
Variable production costs |
|
|
Fixed production costs |
|
|
Net profit |
Total Revenues and Costs for Southern Glass
|
(1) If production transfers all cases to labeling |
|
|
Production dept. variable costs |
|
|
Production dept. fixed costs |
|
|
Label dept. external sales |
|
|
Label dept. additional fixed costs |
|
|
Net Profit* |
|
|
(2) If production sells ¼ to ABC & transfers ¾ to labeling |
|
|
Production dept. external sales |
|
|
Production dept. variable costs |
|
|
Production dept. fixed costs |
|
|
Label dept. external sales |
|
|
Label dept. additional fixed costs |
|
|
Net Profit** |
*This profit should equal: production net profit + labeling net profit for option (1) in the first two tables
**This profit should equal: production net profit + labeling net profit for option (2) in the first two tables
Labeling Department Revenues and Costs
|
(1) If production transfers all cases to labeling |
|
|
Revenue from sales on external market |
|
|
Transfer costs from production |
|
|
Additional fixed labeling costs |
|
|
Net profit |
|
|
(2) If production sells ¼ to ABC & transfers ¾ to labeling |
|
|
Revenue from sales on external market |
|
|
Transfer costs from production |
|
|
Additional fixed labeling costs |
|
|
Net profit |
In: Accounting
At June 30, 2017, the end of its most recent fiscal year, Bramble Computer Consultants’ post-closing trial balance was as follows:
| Debit | Credit | |||
|---|---|---|---|---|
| Cash | $4,080 | |||
| Accounts receivable | 940 | |||
| Supplies | 540 | |||
| Accounts payable | $310 | |||
| Unearned service revenue | 870 | |||
| Common stock | 2,800 | |||
| Retained earnings | 1,580 | |||
| $5,560 | $5,560 |
The company underwent a major expansion in July. New staff was
hired and more financing was obtained. Bramble conducted the
following transactions during July 2017, and adjusts its accounts
monthly.
| July | 1 | Purchased equipment, paying $3,600 cash and signing a 2-year note payable for $15,600. The equipment has a 4-year useful life. The note has a 6% interest rate which is payable on the first day of each following month. | |
| 2 | Issued 15,600 shares of common stock for $39,000 cash. | ||
| 3 | Paid $3,000 cash for a 12-month insurance policy effective July 1. | ||
| 3 | Paid the first 2 (July and August 2017) months’ rent for an annual lease of office space for $3,100 per month. | ||
| 6 | Paid $3,000 for supplies. | ||
| 9 | Visited client offices and agreed on the terms of a consulting project. Bramble will bill the client, Connor Productions, on the 20th of each month for services performed. | ||
| 10 | Collected $940 cash on account from Milani Brothers. This client was billed in June when Bramble performed the service. | ||
| 13 | Performed services for Fitzgerald Enterprises. This client paid $870 in advance last month. All services relating to this payment are now completed. | ||
| 14 | Paid $310 cash for a utility bill. This related to June utilities that were accrued at the end of June. | ||
| 16 | Met with a new client, Thunder Bay Technologies. Received $9,400 cash in advance for future services to be performed. | ||
| 18 | Paid semi-monthly salaries for $8,600. | ||
| 20 | Performed services worth $21,800 on account and billed customers. | ||
| 20 | Received a bill for $1,700 for advertising services received during July. The amount is not due until August 15. | ||
| 23 | Performed the first phase of the project for Thunder Bay Technologies. Recognized $7,800 of revenue from the cash advance received July 16. | ||
| 27 | Received $11,700 cash from customers billed on July 20. |
Adjustment data:
| 1. | Adjustment of prepaid insurance. | |
| 2. | Adjustment of prepaid rent. | |
| 3. | Supplies used, $1,000. | |
| 4. | Equipment depreciation, $400 per month. | |
| 5. | Accrual of interest on note payable. | |
| 6. | Salaries for the second half of July, $8,600, to be paid on August 1. | |
| 7. | Estimated utilities expense for July, $620 (invoice will be received in August). | |
| 8. | Income tax for July, $940, will be paid in August. |
The chart of accounts for Bramble Computer Consultants contains the
following accounts: Cash, Accounts Receivable, Supplies, Prepaid
Insurance. Prepaid Rent, Equipment, Accumulated
Depreciation—Equipment, Accounts Payable, Notes Payable, Interest
Payable, Income Taxes Payable, Salaries and Wages Payable, Unearned
Service Revenue, Common Stock, Retained Earnings, Dividends, Income
Summary, Service Revenue, Supplies Expense, Depreciation Expense,
Insurance Expense, Salaries and Wages Expense, Advertising Expense,
Income Tax Expense, Interest Expense, Rent Expense, Supplies
Expense, and Utilities Expense.
In: Accounting
Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 10% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale. During 2018, Citation began construction of an office building for Altamont Corporation. The total contract price is $22 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows: 2018 2019 2020 Costs incurred during the year $ 4,400,000 $ 10,450,000 $ 4,950,000 Estimated costs to complete as of year-end 13,200,000 4,950,000 — Billings during the year 2,200,000 11,000,000 8,800,000 Cash collections during the year 1,980,000 9,620,000 10,400,000 Also during 2018, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $840,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2018 and paid for in full for $840,000 each by the buyers. The completed homes cost $630,000 each to construct. The construction costs incurred during 2018 for the nine uncompleted homes totaled $3,780,000.
Required: 1. Which method is most equivalent to recognizing revenue at the point of delivery?
2. Answer the following questions assuming that Citation uses the completed contract method for its office building contracts:
2-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements?
2-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019?
2-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.)
3. Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building contracts.
3-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements?
3-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019?
3-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.)
4. Assume the same information for 2018 and 2019, but that as of year-end 2019 the estimated cost to complete the office building is $9,900,000. Citation uses the percentage-of-completion method for its office building contracts.
4-a. How much revenue related to this contract will Citation report in the 2019 income statement?
4-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2019?
4-c. What will Citation report in its 2019 balance sheet related to this contract? (Ignore cash.)
5. Which method of accounting should Citation Builders, Inc adopt for its single-family houses?
6. What will Citation report in its 2018 income statement and 2018 balance sheet related to the single-family home business (ignore cash in the balance sheet)?
In: Accounting
Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 10% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale. During 2018, Citation began construction of an office building for Altamont Corporation. The total contract price is $13 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows: 2018 2019 2020 Costs incurred during the year $ 2,600,000 $ 6,175,000 $ 2,925,000 Estimated costs to complete as of year-end 7,800,000 2,925,000 — Billings during the year 1,300,000 6,500,000 5,200,000 Cash collections during the year 1,170,000 5,030,000 6,800,000 Also during 2018, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $680,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2018 and paid for in full for $680,000 each by the buyers. The completed homes cost $510,000 each to construct. The construction costs incurred during 2018 for the nine uncompleted homes totaled $3,060,000. Required: 1. Which method is most equivalent to recognizing revenue at the point of delivery? 2. Answer the following questions assuming that Citation uses the completed contract method for its office building contracts: 2-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements? 2-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019? 2-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.) 3. Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building contracts. 3-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements? 3-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019? 3-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.) 4. Assume the same information for 2018 and 2019, but that as of year-end 2019 the estimated cost to complete the office building is $5,850,000. Citation uses the percentage-of-completion method for its office building contracts. 4-a. How much revenue related to this contract will Citation report in the 2019 income statement? 4-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2019? 4-c. What will Citation report in its 2019 balance sheet related to this contract? (Ignore cash.) 5. Which method of accounting should Citation Builders, Inc adopt for its single-family houses? 6. What will Citation report in its 2018 income statement and 2018 balance sheet related to the single-family home business (ignore cash in the balance sheet)?
In: Accounting
Citation Builders, Inc., builds office buildings and
single-family homes. The office buildings are constructed under
contract with reputable buyers. The homes are constructed in
developments ranging from 10–20 homes and are typically sold during
construction or soon after. To secure the home upon completion,
buyers must pay a deposit of 10% of the price of the home with the
remaining balance due upon completion of the house and transfer of
title. Failure to pay the full amount results in forfeiture of the
down payment. Occasionally, homes remain unsold for as long as
three months after construction. In these situations, sales price
reductions are used to promote the sale.
During 2018, Citation began construction of an office building for
Altamont Corporation. The total contract price is $13 million.
Costs incurred, estimated costs to complete at year-end, billings,
and cash collections for the life of the contract are as
follows:
| 2018 | 2019 | 2020 | |||||||||
| Costs incurred during the year | $ | 2,600,000 | $ | 6,175,000 | $ | 2,925,000 | |||||
| Estimated costs to complete as of year-end | 7,800,000 | 2,925,000 | — | ||||||||
| Billings during the year | 1,300,000 | 6,500,000 | 5,200,000 | ||||||||
| Cash collections during the year | 1,170,000 | 5,030,000 | 6,800,000 | ||||||||
|
1. Which method is most equivalent to
recognizing revenue at the point of delivery? |
|||||||||||
In: Accounting
itation Builders, Inc., builds office buildings and
single-family homes. The office buildings are constructed under
contract with reputable buyers. The homes are constructed in
developments ranging from 10–20 homes and are typically sold during
construction or soon after. To secure the home upon completion,
buyers must pay a deposit of 10% of the price of the home with the
remaining balance due upon completion of the house and transfer of
title. Failure to pay the full amount results in forfeiture of the
down payment. Occasionally, homes remain unsold for as long as
three months after construction. In these situations, sales price
reductions are used to promote the sale.
During 2018, Citation began construction of an office building for
Altamont Corporation. The total contract price is $10 million.
Costs incurred, estimated costs to complete at year-end, billings,
and cash collections for the life of the contract are as
follows:
| 2018 | 2019 | 2020 | |||||||||
| Costs incurred during the year | $ | 2,000,000 | $ | 4,750,000 | $ | 2,250,000 | |||||
| Estimated costs to complete as of year-end | 6,000,000 | 2,250,000 | — | ||||||||
| Billings during the year | 1,000,000 | 5,000,000 | 4,000,000 | ||||||||
| Cash collections during the year | 900,000 | 3,500,000 | 5,600,000 | ||||||||
Also during 2018, Citation began a development consisting of 12
identical homes. Citation estimated that each home will sell for
$620,000, but individual sales prices are negotiated with buyers.
Deposits were received for eight of the homes, three of which were
completed during 2018 and paid for in full for $620,000 each by the
buyers. The completed homes cost $465,000 each to construct. The
construction costs incurred during 2018 for the nine uncompleted
homes totaled $2,790,000.
Required:
1. Which method is most equivalent to
recognizing revenue at the point of delivery?
2. Answer the following questions assuming that
Citation uses the completed contract method for its office building
contracts:
2-a. How much revenue related to this contract
will Citation report in its 2018 and 2019 income statements?
2-b. What is the amount of gross profit or loss to
be recognized for the Altamont contract during 2018 and 2019?
2-c. What will Citation report in its December 31,
2018, balance sheet related to this contract? (Ignore cash.)
3. Answer the following questions assuming that
Citation uses the percentage-of-completion method for its office
building contracts.
3-a. How much revenue related to this contract
will Citation report in its 2018 and 2019 income statements?
3-b. What is the amount of gross profit or loss to
be recognized for the Altamont contract during 2018 and 2019?
3-c. What will Citation report in its December 31,
2018, balance sheet related to this contract? (Ignore cash.)
4. Assume the same information for 2018 and 2019,
but that as of year-end 2019 the estimated cost to complete the
office building is $4,500,000. Citation uses the
percentage-of-completion method for its office building
contracts.
4-a. How much revenue related to this contract
will Citation report in the 2019 income statement?
4-b. What is the amount of gross profit or loss to
be recognized for the Altamont contract during 2019?
4-c. What will Citation report in its 2019 balance
sheet related to this contract? (Ignore cash.)
5. Which method of accounting should Citation
Builders, Inc adopt for its single-family houses?
6. What will Citation report in its 2018 income
statement and 2018 balance sheet related to the single-family home
business (ignore cash in the balance sheet)?
In: Accounting
Citation Builders, Inc., builds office buildings and single-family homes. The office buildings are constructed under contract with reputable buyers. The homes are constructed in developments ranging from 10–20 homes and are typically sold during construction or soon after. To secure the home upon completion, buyers must pay a deposit of 10% of the price of the home with the remaining balance due upon completion of the house and transfer of title. Failure to pay the full amount results in forfeiture of the down payment. Occasionally, homes remain unsold for as long as three months after construction. In these situations, sales price reductions are used to promote the sale. During 2018, Citation began construction of an office building for Altamont Corporation. The total contract price is $13 million. Costs incurred, estimated costs to complete at year-end, billings, and cash collections for the life of the contract are as follows: 2018 2019 2020 Costs incurred during the year $ 2,600,000 $ 6,175,000 $ 2,925,000 Estimated costs to complete as of year-end 7,800,000 2,925,000 — Billings during the year 1,300,000 6,500,000 5,200,000 Cash collections during the year 1,170,000 5,030,000 6,800,000 Also during 2018, Citation began a development consisting of 12 identical homes. Citation estimated that each home will sell for $680,000, but individual sales prices are negotiated with buyers. Deposits were received for eight of the homes, three of which were completed during 2018 and paid for in full for $680,000 each by the buyers. The completed homes cost $510,000 each to construct. The construction costs incurred during 2018 for the nine uncompleted homes totaled $3,060,000. Required: 1. Which method is most equivalent to recognizing revenue at the point of delivery? 2. Answer the following questions assuming that Citation uses the completed contract method for its office building contracts: 2-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements? 2-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019? 2-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.) 3. Answer the following questions assuming that Citation uses the percentage-of-completion method for its office building contracts. 3-a. How much revenue related to this contract will Citation report in its 2018 and 2019 income statements? 3-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2018 and 2019? 3-c. What will Citation report in its December 31, 2018, balance sheet related to this contract? (Ignore cash.) 4. Assume the same information for 2018 and 2019, but that as of year-end 2019 the estimated cost to complete the office building is $5,850,000. Citation uses the percentage-of-completion method for its office building contracts. 4-a. How much revenue related to this contract will Citation report in the 2019 income statement? 4-b. What is the amount of gross profit or loss to be recognized for the Altamont contract during 2019? 4-c. What will Citation report in its 2019 balance sheet related to this contract? (Ignore cash.) 5. Which method of accounting should Citation Builders, Inc adopt for its single-family houses? 6. What will Citation report in its 2018 income statement and 2018 balance sheet related to the single-family home business (ignore cash in the balance sheet)?
In: Accounting